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3/20/10

Next Wednesday is the 30th anniversary of the assassination of Oscar Romero.Tim's El Salvador blog (where else?) has a full rundown on what to expect from the planned commemorations of the date. Tim also provides a link through to Jon Stewart's Daily Show segment on Romero (which is wonderful as usual).

Know your history, or be condemned to repeat it. Your choice.

UPDATE: Duderino over at Abiding reminds us of a very similar case in Bolivia and the 30th anniversary memorials for Luis Espinal that happened today.

Bananama Republic shows how self-important dumbass experts are born in LatAm. The pattern explained is not confined to Panama by any means, but their post is wittier than anything round here so go enjoy the fun.

This from Adam Curtis is a real tour de force. He looks at the studies made on the Yanomamo tribe of the Amazon (taking in the Nazca lines, curations using guinea pig and all sorts of things) and comes to the conclusion (quite rightly too, I believe) that the "primitives" are far wiser and more astute than the ever-so-clevers that go to study them. An excellent read that touches base successfully on several subjects.

Picking out the best Mex Files post of the week is always difficult. This time I'm going for the article on the revival of Ulama in Mexico, an ancient sport played in Aztec times that authorities want to promote. Back in the golden olden days, if you won you might have had the privilege of being sacrificed to the Gods.

Structurally Maladjusted does a good round-up post of the bitchin' an' scratchin' already starting in Chile's political circles regarding the post-earthquake rebuild plans. However the aside about Chile 'losing' 18% of its GDP misses a point, as countries that go through these things actually see increased GDP as a result (that's the wakkt out world of stats and economistdumbassinsuits for you).

Today's lesson: When big money wants to run and hide, it does not run to gold:

It runs to the US Dollar. This time is NOT different.Any other stories spun by idiot goldbugs are simple fantasy. Live with it, stop wingeing about the PTB conspiracy that's used against you personally and take some advice from Chopper:

Next Monday (22nd) and Tuesday (23rd), President Klishtina Duarte of Argentina is hanging in Peru, meeting Twobreakfasts, his heir apparent (or so Alan desires) Castañeda, attending big banquets, homages to San Martín, the whole nine yards.

Oh...and then there's the trifling matter of the 100 Argentine bizpeeps travelling with her on Tango Zero Uno. The real reason for the trip is to drum up a bit of trade between the two nations, but hey....enjoy the photo-ops.

Remember Uranium (in its U308 form), the commodity you can't hoard (well, apparently there are a couple of places in the world, but capacity is very limited compared to true end-user demand)? We featured it a while back with the very same comment on how it was behaving differently to oil, copper etc ad infin. Since then it just dropped further.

But these last two weeks, the spot price for U308, though a very thinly traded contract, has clicked up a couple of spots, marking the first time in a long time that U308 has managed to add price two weeks running. Add that to the shape of the above chart, as if we ignore that very silly speculative bubble the U$40/lb level does seem to have that bottomish look about it.

U308 is one to watch, folks. For one thing it might give us a better idea of the rebound in true demand (cos the dumbass suits in London can't take delivery and store a tonne of yellowcake under their desks without worrying what it'll do to their sex life) and secondly cos there are a whole bunch of beaten down junior U plays that might just give us a trade or two going forward. I'm not talking about the cruddy ones; there are literally hundreds of those in the U sphere. I'm talking the true quality U plays that have been thrown out baby/bathwater style and haven't caught a bid since then. Not talking the very few market hotpots like HAT.v or FIS.v either.

So keep an eye on the U308 price. I'm not buying in yet, but if u308 gets past $50 or so it may be time to rootle around and add a bargain price or two to the port. DYODD.

Geothermal power isn't a sector this humble scribe follows very closely, but there has been an eye cast across this stock on a couple of occasions, mainly because its mining mogul Ross Beaty's new baby. So when a reader mailed earlier this week and wondered if I'd noticed the continuing weakness in the stock, I looked at the chart.

My considered conclusion is: Yes, it has been trading like a dog, hasn't it?

3/18/10

It's the little things that matter sometimes, those devils in those details. Combine a smarter than average financial journalist who knows how to get things past his editors at FP with eagle eyed IKN reader 'MP' and here's what you get (red type added here):

Sutts, Strosberg's investment in U.S. class-action securities lawyer Andrew Morganti appears to be paying off with the announcement that the firm has reached a $28-million cross-border settlement on behalf of investors in NovaGold Resources Inc. The settlement must still be approved by judges in Canada and the United States. NovaGold was represented by Gowlings lawyer Kelley McKinnon, a former deputy director of enforcement at the Ontario Securities Commission.

The Sutts, Strosberg firm sued NovaGold in October, explained Jay Strosberg, who worked on the case along with Mr. Morganti. Mr. Morganti joined Sutts Strosberg last April after working at the U.S. class-action giant Milberg LLP and knows all about class actions, having been involved in lawsuits that won millions of dollars for plaintiffs.

The Sutts, Strosberg firm became involved in the suit after U.S. law firm Labaton Sucharow sued NovaGold in the United States, but a court there ruled it didn't have the "jurisdiction to deal with Canadian investors," Mr. Strosberg said. So his firm launched a parallel action in Canada on behalf of Canadian investors.

The claim, directed at the company and its officers and directors, alleges the defendants misrepresented that the Galore Creek mining project was "economically feasible when they knew or should have known that the construction of the Tailings Dam would cost substantially more than publicly disclosed figures."

Today's news from a weird corner of the world. Meanwhile in the very weirdest corners of the world, the people that led their economies off the cliff are still fawned over and adored in Davos pow-wows.

SEOUL, March 18 (UPI) -- North Korea has reportedly executed the country's former director of financial planning on charges of treason, sources say.

The sources say Pak Nam-gi was executed by a firing squad in Pyongyang last week for intentionally ruining the national economy, The Korea Herald reported Thursday.

Pak is being blamed for last year's failed currency reform and growing public unrest over North Korea's faltering economy, one unnamed source is quoted as saying.

The North is reportedly describing Pak as "a landlord's son who snuck into the revolutionary ranks to intentionally wreck the economy."

The South Korean Unification Ministry says it is unable to officially confirm reports of Pak's execution.

Nadagold (NG) down 1.5% at U$7.43 and the junglydrums are getting nasty out of NYC now. DYODD dude, but I reiterate my "this is stupidly overvalued" call that's been 100% wrong so far. Will the word "Kaplan" be the 21st century's version of the word "Ponzi"? Only time will tell.

TheNewCrystallex (EC.v) down 2.5% at $0.78...ooooh ooooh boys, it's nearly the end of the month....betcha can't hardly sleep now can yaz?

Dorato Resources (DRI.v) down 7.8% at $1.07 and they just can't seem to keep their erections going, can they? The same pattern every day, where it thrusts in the morning but the droop soon sets in......no use to anyone, really. Hey dudes, once I'm free of fettles on March 29th I have this wonderful story to tell you about one of the Henkwhores stationed in Germany. All will be revealed.

ECU Silver (ECU.to) UNCH at 65c. That magical time of the year is upon us again, as we're just hours away from the ECU.to annual earnings report. Guaranteed guffaws for anyone who can read a balance sheet (which excludes all movers&shakers over at GATA, obviously).

Constitution Mining (CMIN.ob) down 3.6% at $0.81. Cue owl:UPDATE: The first part of the NYC junglydrums just got backing, as Greg J just resigned from the company. Luckily he's unlikely to swamp the market with large share sales in the next few days as he hardly owns any NG stock or options...NOT. This stock is now out of the hands of the petty market bitchers such as myself and about to become a big boys' football. Gonna be fun.

Thanks due to reader 'JR' for passing on this report from Bolivia Weekly. The news concerns our favourite LatAm fascist Branko Marinkovic, chickenshit multimillionaire and coupmonger who fled Bolivia after his racist plot failed. Here's the first part pasted and make sure you click through for the rest.

Ex-Aid Testifies that Marinkovic Financed Accused Terrorists

On March 17th, former Santa Cruz civic leader Branko Marinkovic’s longtime personal assistant and right-hand man for 14 years Juan Judelka confirmed that Marinkovic was financing a group called “La Torre” that is accused of terrorist conspiracy. Judelka declared under oath before prosecutor Marcelo Soza in La Paz that Marinkovic had on several occasions given him money in closed envelopes to deliver to Hungarian-Croatian-Bolivian Eduardo Rozsa Flores who was shot by police in a raid on the Las Americas hotel in Santa Cruz on April 16th, 2009. The Bolivian government accuses the deceased Rozsa Flores of being an international mercenary paid by Santa Cruz leaders to assassinate President Morales.

Judelka said, “If I did not testify earlier it was because of pressure by Mr. Marinkovic’s lawyer, but in my testimony I said that I effectively carried money from Branko to the La Torre (accused terrorist cell led by Rozsa Flores), after that Mr. Orlando Justiniano asked me to take this money to a Mr. “Germán” who was really Rozsa Flores.” The Bolivian government is accusing the Santa Cruz state government of organizing the La Torre group duringCONTINUES HERE

Message to Simone Rosemary: You still proud of that fawning interview you did with Branko, dumbass? For those with better sense of the obvious than the NYT's star in LatAm, this post by Duderino will remind you just what this piece of shit Branko was trying to do to Bolivia. Fortunately, democracy is alive and well in Bolivia thanks to Dr. Morales.

Word from Ecuador today is that FinMin Viteri has rejected terms for the Chinese financing of the country's major hydroelectricity projects. Reuters via El Comercio states that due to "differences in the credit conditions" required by either side, the near U$2Bn project is now without the proposed funding from China's Eximbank (in effect just another front for the State itself). Apparently, after eight months of negotiations,Ecuador has rejected the deal on the table due to overly strong demands from the Chinese. In the words of Viteri herself:

"They (Eximbank) have asked for conditions that no country has ever asked of us....We are not going the cede our sovereignty and we are not going to give in to Chinese ill-treatment, as the intention was to have a different type of relationship".

Ecuador also said that the tendering process will now be re-opened. All strong stuff. Funny how this newly found Ecuadorian backbone coincides with the strength in oil prices, innit?

When you go over to the press release and peruse those numbers, why not ask yourself exactly how GPR generates its cash cost number of U$4.80/oz Ag but only records a net profit of $1m in a quarter that sees it sell nearly $10m of metal.

Why is that? Seriously, the GPR avg silver Eq price for the quarter is $15.38/oz. And cash costs at $4.80/oz. You'd think they'd clear over $10 an ounce, right?

Fortunately, I'm not a TA-head. Cos if I were a TA-head I'd be wetting my pants about the cup and handle configuration here and shouting to da moon Alice to all and sundry.

Nah, I'm more interested about Venezuela and Ecuador. Sorry wingnuts, but selling the black stuff at $70/bbl and $80/bbl means neither country is set to explode this year as predicted by the dumbasses. In the case of Venezuela, that makes about five years in a row that reports of death have been greatly exaggerated.

"February 2010 was the worst month in the history of the Ebullio Commodity Fund and we regret to report a return of –86.25 pct for the month, which brings our total return for the year to –95.83 pct and to -89.63 pct since inception."

The Ebullio (Latin for "to produce in abundance", yok yok) Fund now has a NAV of $6.83. Or in other words, if you'd invested U$1,000 with these guys when the fund started in July 2008, you might now have enough for a McDonald's Happy Meal (and maybe the bus fare home). However the bad news is that the minimum deposit to this fund was $100,000.....ouch. But the fun really begins as the note unfolds, with the pinnacle standout line coming in paragraph four:

"The good news is that whilst our NAV is obviously impacted to the low side by this, the Fund continues to do business as usual."

That is so wonderful. I've sat here trying to write a comment on the above line, but it's turned out to be impossible to fit all the emotions it creates inside mere words. But wait! There's more!

"The liquidity position of the Fund is strong with in excess of USD 40 million in cash...."

Soooo...you got $40m in liquid cash and fund assets are noted at $1.47m in the same note to clients. Hmmm...perhaps you haven't told them about the current liabilities you might be carrying here, dudes. Y'know, just a thought.....

"..... and since the remaining physical book is very profitable going forward, we view the future with confidence (this confidence is being justified by our March month-to-date result which is showing a plus of more than +10 pct at the time of writing)."

Aha! You mean that you lose over 95% of clients cash in two months, but then the month-on-month increase might get the NAV from $6.83 to maybe $7.50 or so! Hold the Happy Meal! Make it a BigMac and fries! But let's leave it to manager Lars Steffensen to give us the wrap up:

Despite our very upbeat view on the future and performance of the Ebullio Commodity Fund, we have obviously had a tough couple of months and have certainly come to realize with Bad Blake (played by Oscar winning Jeff Bridges) in “Crazy Heart”: “You don’t see it coming, until it’s gone.....”

The last 60 seconds of this song are dedicated to all those on the dark side of capital markets, those that lie, cheat and deceive simply to fill their own pockets and have no idea of the damage they are doing to themselves and to others. Thank you for your mails this morning, assholes.

Damned interwebnetpipes has been in off mode in this city all morning. Now trying to catch up.

Apoquindo (AQM.v) up 4.8% at $0.87 and from that let's guess its current financing (already extended once) slated at 85c is going really well.

Dynasty Metals (DMM.to) down 6.8% at $4.14 after running up the last two days. The $10m bought deal announced this morning (with freakin' warrants attached too) has gone down like a pork pie at a Jewish wedding. DD going on this end.

Minera Andes (MAI.to) down a penny at $1.01. It was up at the bell, then it sunk (probably due to nerves around the HOC lawsuit) and now it's back where it was. The market is still scratching its head over this one. I fail to see anything good here at this price.

AuEx Ventures (XAU.to) up 0.7% at $3.07. Even though it hardly pays to try and think for yourself these days (far better just to follow the marketwide confidence tricks set up for you and scalp your % gains, innit?), this one might be a place to accumulate right now. The Long Canyon resource update is due out end March/early April and is set up as a market mover. At PDAC, XAU was reportedly confident about the future of LC (and its properties nearby). Volumes are still low in this thing, which means you get the chance to beat the rush (what could possibly go wrong?)

Last week a violent incident in Bolivia's Chonchocoro prison, some 20 miles outside of La Paz, opened a veritable can of worms that ended up with the head honcho of the jail getting sacked. It all started when a hand grenade was set off by a prisoner that injured three other prisoners. This was, apparently, part of a power struggle inside the prison between jailmate factions that has seen several deaths in the last few months.

Prison inspectors turned up at the jail and conducted a full inspection. But sadly for the Director they decided to inspect the cell of Luis García Meza, the dictator that ran Bolivia in 1980/1981, was sentenced to 30 years prison in the 90s for an armful of human rights crimes committed while in power and extradited from Brazil in 1995 to serve his time. Since then he's been locked up in Chonchocoro. His sentence states that he should not benefit from any special privileges. Also, in every annual report sent by the (now ex) prison director, García Meza was said to be treated like any other prisoner.

Bookshelves, TV, a barbecue, oven, a fully equipped gymnasium, nice kitchen with table, cutlery (cool knives!) etc, a private telephone and even a sauna. Inspectors were quoted as being "impressed", but not impressed enough to leave things the way they are. García Meza is now in a normal cell and living the life of penitence as demanded.

We like Troy Resources (TRY.to)(TRY.ax), so when the company publishes a brand new investor presentation to accompany its European investor roadshow, we're interested in its contents. Rather then reading my take on it, just click here and get a copy for yourself.

The latest insider filings from Copper Fox (CUU.v) below. Funny how these people are quick to declare the buy but forget to declare a sale that happened on the very same day. Funny dat, innit? All in PDAC week, too.

Copper Fox Metals Inc. (CUU)

As of March 16th, 2010

Filing Date

Transaction Date

Insider Name

Ownership Type

Securities

Nature of transaction

# or value acquired or disposed of

Unit Price

Mar 16/10

Mar 08/10

Macdonald, David Morris

Control or Direction

Common Shares

10 - Disposition in the public market

-948,000

$0.180

Mar 16/10

Mar 08/10

Macdonald, David Morris

Control or Direction

Common Shares

10 - Disposition in the public market

-20,000

$0.180

Mar 12/10

Mar 08/10

Macdonald, David Morris

Direct Ownership

Common Shares

10 - Acquisition in the public market

22,000

$0.210

Mar 12/10

Mar 08/10

Macdonald, David Morris

Direct Ownership

Common Shares

10 - Acquisition in the public market

30,500

$0.185

Mar 12/10

Mar 08/10

Macdonald, David Morris

Direct Ownership

Common Shares

10 - Acquisition in the public market

25,000

$0.205

Mar 12/10

Mar 08/10

Macdonald, David Morris

Direct Ownership

Common Shares

10 - Acquisition in the public market

206,000

$0.195

Mar 12/10

Mar 08/10

Macdonald, David Morris

Direct Ownership

Common Shares

10 - Acquisition in the public market

948,500

$0.180

Mar 09/10

Mar 05/10

Macdonald, David Morris

Direct Ownership

Common Shares

10 - Acquisition in the public market

25,000

$0.155

Mar 09/10

Mar 04/10

Macdonald, David Morris

Direct Ownership

Common Shares

10 - Acquisition in the public market

109,500

$0.155

Mar 09/10

Mar 03/10

Macdonald, David Morris

Direct Ownership

Common Shares

10 - Acquisition in the public market

75,000

$0.155

If you're wondering why this kind of pattern is a red flag, do yourself a favour and don't bother investing in junior miners.

Oh, now this one could run and run....and be fun along the way, too. Funnily enough I was looking at MAI and wondering if it were shortable at its $1+ prices registered, as a couple of e-mail pals will stand witness. I didn't short it in the end, so just a sideline spectator as this stuff unfolds. I can't wait for the Rob Mac E reply PR:

- Despite a $65 million loan disbursement by Hochschild, Minera Andes, Inc. and Minera Andes SA have refused to execute formal loan agreement documents for three years - Hochschild provided a project finance loan to the co-venture entity, Minera Santa Cruz, for the construction of the San José mine in Argentina - Minera Andes has caused an undue delay in documentation and repayment of this loan by refusing to execute formal loan documents - Legal action has no impact on the running of the San José mine, which is operated by Hochschild

LONDON, March 17 /CNW/ - Hochschild Mining plc ("Hochschild") today announces that it has filed suit in the New York State Supreme Court, asking that Minera Andes, Inc. ("MAI") of Alberta, Canada and its subsidiary, Minera Andes SA ("MASA"), be required to execute formal loan agreement documents for the $65 million project financing loan Hochschild provided to the San José gold and silver project in Argentina.

The mine, a co-venture between Hochschild and MAI, has been in operation since June 2007. Under the terms of letter agreements between the parties executed in October 2006, Hochschild alone provided the full amount of the project financing, totalling $65 million in instalments between October 2006 and July 2007.

The complaint alleges that MAI and MASA have unduly delayed the execution of formal loan documents and repayment of the loan by the co-venture entity, known as Minera Santa Cruz. Hochschild has made repeated attempts to finalize the formal loan agreement documents, but the suit alleges that MAI and MASA have made demands never contemplated by the original letter agreements.

The suit lists five separate causes of action. It seeks a decree by the court requiring MASA and its parent company to execute formal loan agreement documents with Hochschild, consistent with the previous agreements between the two companies. It asks that Minera Andes, Inc. and MASA be enjoined from further interference in the repayment of the project finance loan, asks the court to order payment to Hochschild of benefits derived by MAI and MASA as a result of the loan, and requests an order declaring that other shareholder loans are subordinate to the project finance loan.

The law suit has no impact on the running of the San José mine, which is operated by Hochschild. The mine initiated operations in 2007 with a plant capacity of 265ktpa, and following a successful expansion in 2008, it doubled plant capacity to 530ktpa. In 2009, the mine produced approximately 5 million ounces of silver and 77 thousand ounces of gold.

In the note, Christopher Sabbatini points out the fact that tolerance of homosexuality (in the above chart measured by the willingness to have an openly gay person as a politico), has not changed much in the present generation. From what I've witnessed in the corners of LatAm I know, that one is sad but true. Click through to read more on the deal.

3/16/10

Sir, your mailbox is full, that's why you haven't received your issue of IKN45. I've tried six times to send you a message regarding this situation (with and without attachment) and every time receive the same bounce notification (edited with Xs to protect ID):

Adolfo Pérez Esquivel is the head of the highly regarded organization Serpaj (Spanish acronym that stands for "Argentina Service for Peace and Justice") . He is also a Nobel Peace Prize laureate, having won the award in 1980 (remember the days when they used to give the prize out to people that actually deserved it? Seems so long ago now.....).

Pérez Esquivel yesterday made official his backing for Evo Morales to win the prize. The laureate said (translated):

"Evo Morales Ayma is named (by Serpaj) as candidate for the Nobel Peace Prize for his permanent struggle for social justice, respect for cultural diversion, his constant efforts for Latinamerican and Caribbean integration, and the respect, peace and coexistence between nations."

Apparently this year there are something like 234 names entered as candidates for the big award (an all-time record) so there's plenty of competition. But away from the 24 hour a day biased bullshit you're fed by English language media, the good works of Evo Morales are recognized by people that hold real weight in the world of peace and social justice. Just marking your card in case Evo actually goes and wins the darned thing.

No NOBS report this week. However it was a close run thing, so here’s a full disclosure on where this author stands right now as regards NOBS report target Carpathian Gold (CPN.to).

CPN is a junior exploration stage gold miner with two main projects, namely the RDM project in Brazil and the Rovina project in Romania. Both can be considered flagships in their own ways, because although Rovina is much larger (7m oz Au M+I+I plus copper credits) and looks like a solid property, the Brazil RDM asset (1.3m oz Au M+I+I) is close to a final build decision and if all goes well will be online next year.

I’ve spent plenty time on CPN this week and like how the numbers look. At its current $0.345 share price, which represents a market cap of $96.74m, it looks a bargain and it’s likely to be called as such. However I feel I need more time is needed on background checking of the people and the assets, both in Brazil and in Romania, so rather than rush into a final decision this week, I’m going to give myself the extra time, get more comfortable with the background to the stock and defer the NOBS report until IKN45. Still, take this little note today as a headsup primer; right now I’m positive on the company as a potential investment, the numbers are looking good etc but the final decision will come next week. In the meantime, if you like why not check out the company website yourself (1).

Then indeed in IKN45 out last weekend, we did run a full NOBS fundamental report on the company, called it a buy and added it to our 'Stocks to Follow' list (which never has more than 15 names included, by the way). So let's see how things are going so far this week:

What say you, owly?

If you want to look at the report, join today (the button is over there at the top right of the blogpage) and I'll glady send over the latest editions. Just sayin'...

Here's a video of what happened yesterday in the Peruvian town of Huancayo.

Two thieves were caught red-handed while trying to steal jackets from a stall in Huancayo's Central Market. They (siblings Javier and Rosario Rojas) then went through the following:

stripped to their underwear

hands tied behind their backs

a paper with "I'm a Thief" taped to their chests

paraded around the central market so that everybody could see their faces

jeered and shouted at

at the end of the parade, buckets of cold water poured over them

finally the two were handed in to the local police station

Note that the two were not physically injured throughout their ordeal. I'll leave it to you to decide whether all the above was a good or bad thing but I will say that the Inca laws of Ama Sua, Ama Quella, Ama Llulla (look 'em up for yourselves if you care enough) are alive and well and living in the Central Highland region of Peru.

The "Pueblo Viejo" gold project is 60% owned by Barrick (ABX) and 40% by Goldcorp (GG). It's a ramping mine that is due to start extracting the contained 13m+ ounces of gold in 2011, but in the last 48 hours has been making headlines of a different type.

Check out The Mex Files on the story that has 1,000 workers claiming they were poisoned by a sulphide cloud and then later the mine bigwigs saying it was "only" a case of massed food poisoning shipped in by the caterers. All rather weird, as I know for a fact that sulphide fumes smell very different from a cheese sandwich....

We haven't done this for a while, so last week's publication of Peru's January Imp/Ex numbers gives a good time to check out the state of play.

Let's start with exports-only. There were superduper fanfares in the local press about exports rising 44% or 48% or some weird number, but a more careful look at the numbers show that January 2010 compares very closely to Janaury 2008. In other words, two years have gone by and the net result for the country is zero.

click on charts to enlarge

On the one hand, it's a good thing to see Peru coming out of the crisis trough of course. However, it hardly merits the rah rah you hear (and keep hearing all year) of the YoY comparatives that get spun out of Lima.

Also let's note, once again, just how little Peru's export mix has evolved. It's still a primary materials monoculture with metals (mainly copper and gold) making up the largest chunks of the total. How do you add value to a 1kg ingot, Twobreakfasts? Meanwhile, other traditional exports have trodden water along with the non-traditionals too. Here's the percentage breakdown of exports for January 2010:

Peru's historic exports mix is with 60% metals....nowadays it's even higher. So much for the productive "miracle" of Peru's growth, which in fact rests squarely on the shoulders of large world miners that remit all profits back to Canada, Australia, the USA, the UK etc. Viva investment grade, baby...

Now comparing imports to exports, we again see that 2010 is no better compared to 2008 or even 2007, such is the inertia.

A recovery is on? Yes no doubts, with that steady climb in imports underlying the good news. Anything better than 2007 or 2008? Nope. So next time the headlines scream the Kool-Aid at you, remember the real context of the "growth" figures that you'll see out of Peru this year.

I don't own and I'm not planning to take a position either (not my region), but I know at least one reader (initials PV) has been long and talking up this story for months, so congrats to him. There was big buzz around PDAC and the rumours of 20m, 50m even 70m ounces of gold at the EAS properties was pretty extreme.

I'm very leery (and to repeat, no position now or at any point in the past) and the "if it's too good to be true" adage springs immediately to mind. Anyone out there planning a site trip? Got a spare ticket?

3/15/10

Radius Gold (RDU.v) down 12.7% at $0.345 on ok volumes. This is a solid company and we've made some coin on it previously, but not this particular round trip. My idea of an entry point is still lower than this but Ridgway&Rushton might just buy up stock again before I get in. Worthy to put on your radar at least. DYODD, dude.

Troy Resources (TRY.to) down 5% at $1.90. Humph.

Dynasty (DMM.to) up 2.7% at $4.18 and some signs of a faint heartbeat. Mgmt said last week the company would go FCF+ at end 2q10 as per the revised schedule, even though production was guided down again to 30k oz Au for 2010. This quarter will make or break the company methinks, as if it actually gets round to delivering it's amazingly cheap. Time will tell.

B2Gold (BTO.to) down 2.2% at $1.36. This is a volume monster stock, thus it's no surprise seeing it off today cos vols are tiny compared to the average. A fairly classic PDAC hangover on show.

The following note on Nadagold (NG) was part of IKN45, out yesterday. I've been asked to put it out on the public blog, so fwiw here it is.

Novagold (NG): Call option for the megarich

The one thing that really scares the ultra-rich is the prospect of becoming poor. And aside from the possibility of bad decision-making laying waste to their riches (after years of success) the only event feared by the ultra-rich that would set them on a road to poverty is for hyperinflation to hit the world and make their classic,financial assets and devices close to worthless. As an example, why not ask a Joe Ordinary Zimbabwean what it feels like to be a local currency billionaire and how diligently saved Zim banknotes have been holding up in his savings account recently. In this way we introduce our discussion on the recent action in Novagold (NG).

The recent moves by John Paulson and George Soros as regards Novagold (NG)(NG.to) have been a big talking point in the gold mining community. Paulson’s U$100m position and Soros’s U$75m position (taken via directly controlled funds and companies) were both struck at U$5.50 per share, with the resulting market noise of “good enough for them, good enough for me” seeing the stock move up, closing the week at U$7.23 on stong volumes and insto interest.

The Paulson/Soros investment in NG needs to be looked at carefully. I am on record as belittling Novagold, calling it the decade’s biggest goldmine confidence trick and noting its cash cow status for owners compared to its singular lack of success at any of its projects. So it would seem at first that little old me has some seriously heavy hitters taking the contrary position and let’s face it, it really is a “little me” situation when up against the likes of megarich and über-successful market winners Soros and Paulson. However before this little piece goes any further, let’s make it 100% clear that I have not changed my view on Novagold and I still think the company is a dog. However, I do understand why people such as Paulson and Soros would want a multimillion dollar slice of the company and this apparent juxtaposition is the reason for writing today. In a nutshell, it is my contention that they regard NG as a call option on gold and ultimately a very large insurance policy on their total net worth.

First let’s check the basic company numbers, starting with the assets held by NG. This chart adds up all gold, silver, copper and zinc held under either a reserve of resource count according to company literature. Note it only counts the 50% of the Donlin Creek and Galore Creek properties held by NG (eg, NG reports the Donlin Creek Proven and Probable Reserves at 29.3m oz gold, of which half belongs to NG and half to Barrick (ABX)).

Novagold (NG): Current Metals Reserves and Resources

Donlin Creek

Galore Creek

Nome Ops

Ambler

Totals

Gold P+P Moz

14.65

0

0.5

15.15

Gold M+I Moz

3

3.65

1.9

0.5

9.05

Gold Inferred Moz

2

2.45

0.3

0.3

5.05

TOTAL GOLD Millions of Oz

19.65

6.1

2.7

0.8

29.25

Silver Moz (all categories)

106.5

51

157.5

Copper M+I Bn Lbs

4.45

1.5

5.95

Copper Inferred Bn Lbs

2

0.94

2.94

Zinc Bn Lbs (all cat)

3.5

3.5

source: Novagold fact sheet Feb 2010

The above table really shows nothing more than the bones of the reserves/resources and we’re not going into things like the cut-offs, grades, recoveries and all sorts of et cetera. But what we can say is that, assuming resource count accuracy and taking the resource numbers (esp the inferred) at face value, NG has control of 29.25m ounces of gold, 157.5m ounces of silver, 8.9Bn lbs of copper and 3.5Bn lbs of zinc. The copper, silver and zinc are all very nice, bound to lower cash costs as a credit in the event of mining taking place etc, but the whole ballgame here is the amount of gold. Now that the two new financings have closed, NG has 220m shares outstanding (around 290m F/D) which gives us a market capitalization for the company of U$1.591Bn at today’s share price. Do the quick math and that works out at U$54/oz Au in situ (again, ex-credits and assuming accuracy in all reserve and resource counts).

To sum up this part of the article, we can state that there’s good reason to value the gold held by NG at U$54/oz at today’s parameters. Of course we can argue the toss about the differences between projects, the resource/reserve split (which I’d be the first to admit is very important to fully understand) the differences between contained gold and recoverable gold (e.g. Donlin’s contained gold is marked at 29.3m total, but after the projected recovery rate is taken into account then NG/ABX expect to extract 26.2m oz Au successfully, some 3.1m oz less) or any number of details about these parameters. But what that “29.5m oz Au held by NG” gives us is a basic and fairly useful handle on how we can value the company.

This is what Paulson and Soros are getting for their money. Paulson’s 8.3% of the company and Soros’s 6.2% of the company give them the equivalent share of that reserve/resource booty of gold, which is what I believe they’re looking for here. Paulson, for example, has just taken control of around 2.45m oz Au (worth around U$2.7Bn at today’s spot prices) for a U$100m outlay. This moves us towards the reason why this kind of investment makes sense for the likes of the billionaire Gulfstreamers, but before getting there we need to examine the NG projects in a little more detail.

As those who crunch numbers for a living know (or at the very least suspect), the NG assets are lipsticked pigs and the company’s track record as a “miner” (term used as loosely as possible) is poor. We can look at the Nome operations headed by Rock Creek and note that the company abjectly failed to move the mine into production in 2008 and had to close down ops soon after opening due to serious technical flaws. We can remind ourselves of the capex debacles of both Galore Creek and Donlin Creek, where construction costs were underestimated by several billions of dollars due to highly dubious and very flawed mining plans. But perhaps the latest revised feasibility study for the flagship Donlin Creek project gives us the best idea of the situation. The new feasibility study for Donlin, published by AMEC in April 2009, puts capex and sustaining capital costs at U$5.2Bn. And as we can see from this table taken from the news release that accompanied the feasibility study (1)...

Average Annual Gold Production Unit
First Full 5 years ounces 1.6 million
First Full 10 Years ounces 1.5 million
Life of Mine ounces 1.25 million
Total Start-Up Capital(3) $ 4,481 million
Total Sustaining Capital(3) $ 803 million

.....at U$1,000/oz gold, the internal rate of return (IRR) (using a modest 5% NPV discount after tax) is around 10.2%. In other words, Novagold (or its backers) has to find U$2.6Bn and can expect a 10% annual return assuming gold stays above $1,000/oz.

That, ladies and gentlemen, is an awful lot of cash to spend on a gold mine. The projected cash costs per ounce of gold at Donlin look pretty good at around U$477/oz, but you have to put up a great deal of money to get the operation running first. Now for sure having 50% of the project in the hands of Barrick will help ease the worries, as Barrick actually knows how to mine gold profitably and is pretty darned good at it too, but you have to wonder about the mining abilities of the NG based on its own company track record. Buying a used car from that man is one thing, but handing him $2.6Bn and telling him to take good care of it is quite another.

On the other hand, the IRR starts looking far more interesting if gold continues to rise. If we assume (looking at the AMEC figures and extrapolating) that 2.5% is added to that IRR for every rise of U$100 per ounce of gold, once we reach U$1,500/oz, the project IRR is over 22% (making the largeassumption of costs that do not rise in a disproportionate manner). Suddenly, not only does the Donlin Creek project look feasible on paper, but it offers the type of margins (and margin cushion) that would get people to actually move forward and make it a mine. This gets even more true if gold goes to U$2,000/oz....or U$3,000/oz..... or as far as your mind would like to travel on this.

But what would cause the gold price to go over, let’s say, U$2,000/oz? The answer to that one is one simple word; inflation. And we’re not talking normal common or garden 2% or 6% annual CPI rates here but a large and longer term inflationary effect caused by the undermining of currencies. In short, what the world knows as hyperinflation, even though the word is commonly used to describe a double-figure plus annual inflation rate when technically it should be reserved for a 20% per month scenario.

Hyperinflation caused by the collapse of the dollar is the billionaire’s single largest nightmare, as the buying power of money that Mr/Mrs Mogul has patiently and diligently collected over a series of decades would be wiped out in short order. But as goldbugs know (and preach non-stop), ownership of gold protects the investor from the perils of a total collapse in fiat currencies. So the next step is simply to note that if a person takes a position in gold, that person is protecting a percentage of their wealth from the ravages of a possible future laden with hyperinflation. It’s a darned good reason to own the stuff, in fact.

That’s as true for us little guys as it is for the biggest of the big guys. It’s why Soros and Paulson have already taken large positions in physical gold, via setting up their own physical gold funds (Paulson) or buying bigtime into the gold ETF (GLD) (Soros). Let’s take John Paulson as our main example today; he is understood to have made billions on his successful short of the US housing market in the 2007-2009 period and according to Forbes now has a net worth of U$12Bn. That’s a lot of money, but even that wedge is beaten by George Soros’s U$14Bn, according to Forbes. Paulson is now understood to have taken a U$270m position in physical gold (via his fund). That approx 2.3% of his total net worth isn’t much on a relative basis and is likely to be greatly outweighed by assumed long positions in more traditional financial positions such as stocks, bonds, real estate etc. But what the slice of cash held in gold gives him is a hedged position in case of the outbreak of a high inflation/hyperinflation scenario that would ravage the rest of his portfolio. He’s a hedge fund operator, so hedging makes a lot of common sense to the man. He’s also 100% non-stupid when it comes to finances and he knows “what gold is”. Gold isn’t there to make people rich, it’s there to stop people from becoming poor. So with a position taken his wealth in gold would rise substantially even as his other investments suffered at the hands of our theoretical persistently high inflation. On the other hand if inflation remains benign, world business stays good and gold loses its allure as a protection against an armageddon scenario for world finances, gold may lose (for argument’s sake) half its value. So our man Paulson makes serious money on his (let’s say) $10Bn worth of longs in stocks, bonds, real estate etc and loses half of $270m as the downside. Sounds like a deal to me.

This author submits that Paulson is not seeking alpha in his gold position. It’s nothing more or less than an insurance policy. Taken in this light, moving $100m into Novagold (NG) instead of another $100m in physical gold makes total sense. With $100m in NG, Paulson gets control over a theoretical 2.45m ounces of gold worth maybe U$2.7Bn if all dug up and sold today. But those same ounces are worth U$3.7Bn at $1,500/oz gold and U$4.9Bn at U$2k/oz Au. That’s serious leverage, folks. So in our theoretical high inflation scenario, Paulson’s “traditional” investments might be put to the sword but his gold positions (via physical and his NG holding) plug an enormous gap in those losses. In our theoretical benign inflation scenario, he loses maybe half of the value in his physical gold position ($135m) and the whole of his $100m in Novagold (because the mines never get built), but his approx $235m loss is far outweighed by the strong performances registered in the ‘traditional’ areas of his portfolio.

Novagold appeals as an investment to the megarich and superwealthy, not because of its current value but more because of its ability to act as a call option on gold due to the large absolute amount of ounces controlled by the company compared to its relatively low market cap; if gold moves up from today’s $1,100/oz to the $1,500/oz, $2,000/oz, $5,000/oz levels expected by the hardcore goldbug community, people like Soros and Paulson will still be rich. But if gold doesn’t move up and NG just stays where it is for the next two years or five years or 10 years or whatever, Paulson and Soros and other like them will be even richer by other means. NG gives people this opportunity due to the absolute size of its reserves and resources of gold (and perhaps the silver, copper and zinc, but the real story is the gold) compared to its market cap today. And that ratio of gold “owned” over market cap (our U$54/oz number mentioned earlier) is low for the simple reason that at today’s levels, Novagold is not a good investment proposition, economically speaking. In this bizarre world of finances, Paulson, Soros (and others) have worked out that Novagold is attractive for them at today’s prices because it’s the owner of an uneconomic business plan at today’s prices (and note the emphasis there) that, importantly, happens to involve nearly thirty million ounces of gold.

So the big question: “Is NG a good investment for us mere mortals?”. The answer is “most likely no” but as usual it all depends on your own situation as regards the classic Risk/Reward equation. For the megarich, betting $100m on a dubious management team and marginal assets makes a lot of sense because for the megarich $100m is something akin to loose change and makes for an excellent call option/hedge on gold. For the megarich, the risk/reward equation is very different than for us mere mortals, too: If U$100m is less than 1% of your individual net worth it’s pretty easy to spend it as an insurance policy on the other things that you own. Or put another way, relatively speaking the risk is minimal and the reward is “not suddenly becoming poor”. Or framed in a slightly different manner, if you have a net worth of U$1m (an actual, good old-fashioned millionaire) I’m not going to say you’re stupid if you own 1,000 shares of NG because that kind of cash isn’t likely to change things one way or the other.

But when the absolute size of the NG gold reserve/resource isn’t as important a a ratio to your total net worth, the perspective is radically different. Looking at today’s playing field, this author is quite certain there are far better places to park some gold investment cash than in NG if you don’t belong to the megarich brigade. If you want exposure to gold, why not invest in a company that has 2m ounces and can extract them efficiently and profitably and make all those around a great return? Soros is good about taking 6.2% of a company like Novagold. He’s not worried about the meagre 10% IRR at U$1,000/oz gold and for him it suits far more than 6.2% in Dynasty that will return an IRR of 30%, 40% or more at the same gold price.

Speaking personally for a moment, I generally avoid high leverage gold and silver plays. NG is one of them. Great Panther Silver (GPR.to) is another, Andina Minerals (ADM.v) another and we could compile a great long list of them. I like low cash cost/prospective cash cost vehicles that will fulfill rule one* with ease. But personal taste aside there is a school of thought that likes the higher cash cost realms of the PM miners precisely because of the leverage they offer, so let’s just examine the case for a second. By way of example, if we move away from NG and look at the GPR.to chart....

.....it shouldn’t come as much surprise to note the big jump in the share price happened at the time when silver the metal (via proxy SLV here) broke out and over U$16/oz, because at $16/oz+ even a patchy and high total cost producer like GPR.to makes money.

So there’s money for someone to be made in these high leverage things, but they’re not for me. The financials do not appeal, there’s too much left to market vagaries and the (over)promotional aspect is normally much stronger. If the gambling aspect of stock market investment suits you more then that’s fine and I’ll cheer you on and congratulate you if you nail a big winner. But even if the high cost/high leverage end of the market is more your style, even though I don’t like it myself I’d wager that Andina Minerals (10m+oz Au M+I+I) at its current $135m market cap would appeal to you more than NG. Over at ADM, even if we only count the likely recoverable ounces at around 6.5m oz, that’s a $20/oz in-situ for you. It’s also led up by a man in George Bee that actually knows how to build a mine, isn’t awarding himself zillions of options, is actually actively running a miner instead of sipping champagne and isn’t going to gouge himself a millionaire’s paycheck the way that Rick VN does at NG, year in and year out.

The bottom line is that Novagold makes sense as an insurance policy for very very rich people or institutions, but if you’re not one of them it makes little sense to own it. The newly bought in Soros and Paulson don’t care a fig about the paper gain of U$1.73 a share they’ve made on the position so far and equally won’t bat an eyelid if the stock falls back to $5 or below in the future. NG isn’t in their portfolio to make them rich. NG is in their portfolio because it’s a no time limit call option on gold that may, one day, stop them from becoming poor. At $7 it’ll turn out to be a bargain if gold goes to $1,500/oz or beyond (which is true for nearly all gold stocks right now). On the other hand it’ll turn out to be very expensive if gold drops to $700/oz....unless of course you’re only using it as a hedge on much greater things.

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